Ldr Plc (UK company) must make a payment of US $450,000 in 3 months’ time. The following information is available: Spot & Forward rates (Bid-Ask): Spot rate: $1.7000 - $1.70403-month forward rate: $1.6902 - $1.69446-month forward rate: $1.6764 - $1.6809Money market rates: Borrow (annual rates) Deposit (annuak rates) US$ 6.5% 5% £ 7.5% 6% 1. Using appropriate calculations, advise Ldr Plc as to whether a forward contract hedge or money market hedge should be undertaken.2. Discuss the practical ways in which a UK exporter might manage its foreign exchange risk.

Ldr Plc (UK company) must make a payment of US $450,000 in 3 months’ time. The following information is available: Spot & Forward rates (Bid-Ask): Spot rate: $1.7000 - $1.70403-month forward rate: $1.6902 - $1.69446-month forward rate: $1.6764 - $1.6809Money market rates: Borrow (annual rates) Deposit (annuak rates) US$ 6.5% 5% £ 7.5% 6% 1. Using appropriate calculations, advise Ldr Plc as to whether a forward contract hedge or money market hedge should be undertaken.2. Discuss the practical ways in which a UK exporter might manage its foreign exchange risk.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter20: Short-term Financing

Section: Chapter Questions

Problem 11QA

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